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14 Feb 2012

Greater China Quarterly Q4 2011 - Bright Outlook for Retail Market

Beijing

In 2011, retail sales in Beijing (excluding cars) reached RMB558.7 billion—up 22% year on year. The prime retail market grew rapidly as local and international retailers expanded. New supply reached a high level in the fourth quarter with four new shopping centres opening, adding a total of 241,649 sq m to the prime retail market. Despite the increase in supply, take-up continued to grow steadily, reducing the vacancy rate by 0.3 percentage point to 8.6%.

International luxury brands continued to expand in Beijing. In the fourth quarter, Dior and Marni opened flagship stores in Shinkong Place and Sanlitun Village, respectively. Strong market demand pushed up the monthly rents of level-one shops by 3.8% to RMB1,206.3 per sq m.

With the central government’s austerity measures impacting the residential sector, some investors shifted their interest to the commercial market. In the fourth quarter, retail property sales reached 257 units—up 7.5% quarter on quarter—while prices rose to RMB58,549 per sq m.

International luxury brands and local, mid to high-end brands are set to continue to enter and expand in the market, supported by the stable growth in income per capita and the city’s strong economy. Nine prime shopping malls are scheduled to open in 2012, providing a total of 880,773 sq m. Since most developments have secured their anchor tenants during the pre-leasing period, we expect the occupancy rates to remain stable in 2012. Rents are set to grow about 15%.

Shanghai

Shanghai’s retail market continued to witness strong growth in supply and demand during the fourth quarter. On the demand side, the city’s 456 medium and large-sized retailers recorded year-on-year revenue growth of 17.6% to RMB7.1 billion during the seven-day National Day holiday. On the supply side, two shopping centres opened, providing about 296,000 sq m of space.

In August, Shanghai’s Banking Regulatory Commission banned individual consumer loans from being spent on purchasing commercial properties, while bank loans for commercial purposes will now only be granted after the completion of the projects. The policies had no significant impact on investors, as they did not impose restrictions on the qualifications of buyers as had been imposed in the residential sector. However, for developers trying to enter the commercial development market, the policies did lift the investment threshold and could add to financing difficulties.

More overseas retailers entered the Shanghai market during the fourth quarter. American clothing brand Hollister opened its first Mainland shop in Raffles City, while Greek accessories retailer Folli Follie and Italian fashion brand ASOBIO both opened flagship stores in Nanjing West Road. Strong demand pushed up the prime retail rents of level-one shops by 1.0% quarter on quarter, to RMB1,489.6 per sq m, while vacancy rates remained at about 9.0%.

Shanghai’s retail market is expected to remain buoyant in 2012. In March, the K11 Art Mall and Japanese department store Gloria will open in Huaihai Middle Road and in Zhongshan Park business circle, respectively. We expect retail rents to grow about 15% in 2012, while prices should remain firm. Over the next two years, commercial properties are likely to remain the main focus of major investment buyers.

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